Buddy's end of year pretax financial income for 2018 was $720,000. Included in it was $40,000 in interest income on municipal bonds, warranty expense accrued for $15,000, a $25,000 fine for dumping hazardous waste, and depreciation of $40,000. Depreciation for tax purposes was $65,000. Their tax rate was 21%.

 

Instructions:

10.1 Compute the taxable income for 2018.

10.2 Compute the deferred taxes at December 31, 2018 that relate to the temporary differences described above.

10.3 Prepare the journal entries to record income tax expense, deferred taxes, and income taxes payable for 2018.

10.4 Format the income tax expense section of the income statement, starting with "income before income taxes".